Why are Global brokerages turning bearish on India?

Analysts on Dalal Street still remain gung-ho on the Indian market and expect the Sensex to scale the 32,000 level comfortably over the next 12 months.Kshitij Anand | ET Online | March 09, 2016, 16:13 IST

NEW DELHI: Credit Suisse has raised an alarm for investors when it downgraded India to underweight from overweight, and termed it as a "profoundly contrarian" call. The current change in stance could well be seen as a warning sign for investors as other global brokerage firms could follow suit.

Other global brokerage firms such as UBS or Citigroup have held positive stance on the Indian market, but expect limited upside from the domestic equity market in 2016. HSBC rated India 'underweight' in May last year.

The Switzerland-headquartered firm said India will experience "modest deterioration" in external position, adding that valuations are at 'unjustifiable' premiums, while earnings revisions are most negative across emerging markets.

Both UBS and Citigroup came out with their estimates for Indian markets post-Budget 2016. UBS said the Union Budget 2016 is unlikely to alter the market trajectory and global risk environment should drive the market in the near term.

It has a December-end target of 7,500 for Nifty50, which the index has already breached. Citigroup maintains a positive view on India with a year-end Sensex target of 27,200, which translates into a 10 per cent upside from current level.

The domestic equity market will need a more bottom-up uptick in earnings growth to respond to what should be a stable top-down India, the report said, maintaining that it has a positive view on the country, with a December 2016 Sensex target of 27,200.

After remaining net sellers in the Indian equity markets for three months, foreign institutional investors (FIIs) bought close to Rs 7,000 crore worth of stocks in five trading sessions, which supported the massive rally witnessed on the Dalal Street after the Budget.

The S&P BSE Sensex is trading well above its crucial psychological level of 24,000 while Nifty50 managed to scale 7,500 in Wednesday's trade .

"The budget presents a credible fiscal consolidation plan despite strong headwinds, which should create the space for some monetary easing," Citigroup said in a separate report.

The Reserve Bank of India (RBI) is scheduled to meet on April 5. In the February 2 policy review meet, RBI governor Raghuram Rajan left the key interest rates unchanged citing inflation risks and growth concerns, while pegging further easing of monetary policy on the government's budget proposals. A rate cut by RBI will be the next big trigger for Indian markets, experts said.

Analysts on Dalal Street still remain gung-ho on the Indian market and expect the Sensex to scale the 32,000 level comfortably over the next 12 months.

"For the index to have a change of trend, it would need a clear rebound in earnings and stabilisation of fund flows from foreign investors. If commodity prices stabilise over the next few months, the outflows because of sovereign wealth funds may taper off. At this point we believe a large part of FII outflows may already be behind us," said Sahil Kapoor, Chief Market Strategist, Edelweiss Broking.

"We have a target of 32,400 on the S&P BSE Sensex for FY17. We prefer companies like PNC Infra, Sadbhav and KNR Construction in the Infra-Space. On the Rural side we prefer companies with higher rural presence like Hero MotoCorp, M&M, and HUL," he added.